Thousands of Amazon suppliers are panicking as the online retail giant has abruptly halted large numbers of wholesale orders.
Amazon explained its move through a terse statement that read in part, “We regularly review our selling partner relationships and may make changes when we see an opportunity to provide customers with improved selection, value and convenience.”
Unfortunately for many of the company’s suppliers, Amazon’s opportunity isn’t their opportunity.
That’s because the retail giant is encouraging those affected to sell their wares through its marketplace, which will almost certainly be a costlier and riskier proposition in most instances.
When suppliers sell to Amazon, they’re paid up front and whether products sell or not, and how fast, is not their concern. If they sell through Amazon’s marketplace, however, they’ll have to wait until products sell to make money. To produce those sales, they’ll have to bear all of the costs associated with
marketplace selling – from Fulfilled by Amazon warehousing fees to advertising.
Bloomberg’s Spencer Soper explained, “Pushing more suppliers onto the marketplace is part of Amazon’s larger effort to reduce overhead by getting more of them to use an automated self-service system that requires no input from Amazon managers.” That self-service system is increasingly lucrative for Amazon.
As Soper noted, “revenue providing services to [marketplace] merchants is growing at double the pace of revenue from [Amazon’s] online store.”
Eventually, it’s conceivable that Amazon could carry relatively little merchandise that it sells directly to consumers, save for its growing number of higher-margin private label brands.
Amazon’s growing incentive to promote selling in its marketplace, even at the expense of relationships with long-time suppliers, threatens the very existence of some of those suppliers. But while some might indeed go out of business, Amazon’s move, if not largely reversed, could in fact be beneficial for certain players both in and out of the Amazon ecosystem.
If some of Amazon’s sellers go out of business, that could be good news for existing marketplace sellers. However, even if there is an influx of former suppliers-turned-marketplace vendors, Amazon reducing the number of products it buys wholesale and sells directly to consumers could reduce
competition from Amazon itself, a potential boon for marketplace sellers.
In addition, many suppliers will likely not have the same experience – if they have any at all – selling directly to consumers through the Amazon marketplace. Established sellers would therefore have advantages over their new, less experienced competitors.
Amazon’s move could also benefit brands and retailers selling off of Amazon’s platform. While Amazon, as a marketplace-oriented company, will still be a powerful force in online retail, its dominance could become more pronounced in certain areas and less in others, giving a boost to off-Amazon sellers capable of recognizing the ways the online retail giant is changing.
The changes seen could create new openings for these brands to differentiate themselves and become more appealing to consumers compared to Amazon.
Specifically, as Amazon focuses more and more on its marketplace and operating in a self-serve manner, problems with customer experience caused by issues like counterfeiting and no-name brands could increase consumers’ willingness to shop elsewhere.